Lucia Guity, right, with The Cupcake Shoppe cheerfully waits on a customer at the Raleigh Downtown Farmers Market in May. The market is among the events sponsored by the Downtown Raleigh Alliance, an agency largely funded by a “municipal service district” tax on downtown properties.
Chris Seward
cseward@newsobserver.com

Lucia Guity, right, with The Cupcake Shoppe cheerfully waits on a customer at the Raleigh Downtown Farmers Market in May. The market is among the events sponsored by the Downtown Raleigh Alliance, an agency largely funded by a “municipal service district” tax on downtown properties.
Chris Seward
cseward@newsobserver.com

Downtown development groups fear Senate budget provision

A little-noticed provision in the state Senate’s 500-page budget bill could jeopardize special tax districts that fund downtown development agencies throughout the state.

Sen. Trudy Wade, a Greensboro Republican, inserted language in the budget bill that would set up a referendum process for residents seeking to kill the tax districts, known as municipal service districts.

Under Wade’s proposal, if 15 percent of registered voters within the district petitioned for a referendum, voters living within the district boundaries would vote on whether to end the special tax and the services it funds. Business and property owners who live outside the district wouldn’t be able to participate in the process.

Wade said she’s responding to concerns about tax districts covering two historic neighborhoods in Greensboro. Property owners in the College Hill and Aycock neighborhoods pay an extra tax to fund landscaping, street lamps and other projects that “enhance the historic character of the districts,” according to the city’s website.

Help us deliver journalism that makes a difference in our community.

Our journalism takes a lot of time, effort, and hard work to produce. If you read and enjoy our journalism, please consider subscribing today.

“I had some constituents call that were concerned there wasn’t an exit strategy for collecting taxes,” Wade said. “The citizens really didn’t have a strategy or a method to end it.”

Current law requires a majority vote of the city or town council to remove a municipal service district tax.

But many of the state’s municipal service districts cover mostly commercial property in downtown areas. The special property tax is established to fund events and services that draw visitors downtown and boost sales at shops and restaurants.

Raleigh, Durham, Chapel Hill and Smithfield are among the Triangle towns with a downtown municipal service district. The Downtown Raleigh Alliance, which is funded by a 7.9-cent property tax, worries the referendum process would mean business interests don’t get a voice in the group’s future.

“The majority of the funding for most districts – if not all of them – is generated by commercial property owners,” said David Diaz, president of the alliance. “This is clearly designed to pit residents against business owners, which defeats the purpose of creating mixed-use districts.

“Downtowns in small towns to large cities could be negatively impacted by such legislation.”

Diaz’s group receives about $1.2 million a year from the downtown tax. Most condominium owners pay a few hundred dollars, while the tax liability for the Wells Fargo Capitol Center downtown – assessed at a $110 million value – runs about $87,000.

The Downtown Raleigh Alliance is credited with helping drive the area’s revitalization from a sleepy office district to a major nightlife and dining destination. The group employs the red-shirted “safety ambassadors” who patrol the streets and hosts events such as a weekly farmers market, a winter ice skating rink and an outdoor movie series.

Raleigh has a similar tax – and a similar agency – to serve the Hillsborough Street business district. In both, business and commercial property owners likely outnumber residents – and residents have occasionally asked to be removed from the district boundaries, arguing that the services don’t benefit them.

In smaller towns such as Smithfield that have a downtown district, only a few dozen voters would be eligible to participate in a referendum on the tax.

Diaz said that city and town councils should continue to have the power to establish and repeal the tax districts. “It seems that it makes sense for the municipal bodies who create the municipal service district to have the power to dissolve the municipal service district,” he said. “The process that is in place for stakeholder complaints is already rigorous and does not seem to need repair.”

Wade said her proposal isn’t designed to affect downtown tax districts. “I’m only speaking to residential areas that have it,” she said. “I haven’t heard anything from any citizens in Raleigh.”

Diaz said he was unaware of the proposed change until he was contacted by a reporter. The provision appears on page 325 of the Senate’s budget bill and didn’t garner a single mention during the floor debate.

Asked why she didn’t put the proposal in a separate bill, Wade said the Senate’s bill filing deadline had passed before she began hearing complaints about the Greensboro tax districts.

House members – as well as Gov. Pat McCrory – have criticized the Senate for adding numerous policy provisions to its budget bill. Many of the policy provisions have far-reaching implications, such as a Medicaid reform plan and a proposed redistribution of sales tax revenue among counties.

The broader policy issues to discuss in budget negotiations have meant that smaller items, such as municipal service districts, haven’t generated much talk as House legislators air their concerns about the Senate budget. It’s unclear which provisions – if any – will appear in the final budget agreement.

Rep. John Blust, a Greensboro Republican who has clashed with Wade recently over a local redistricting proposal, said the budget bills should be limited to addressing government spending. “Wouldn’t it be a great idea to prescribe that in our rules going forward?” he asked recently.